After a breathtaking collapse, silver prices mounted a significant recovery on Tuesday. The precious metal, which had shed nearly 40% of its value in a matter of days, surged as much as 11% to trade around $88 per troy ounce. This dramatic reversal follows a journey from record highs to a steep abyss, raising questions about the causes of the crash and the durability of the rebound.
Key Data Points:
* The price plummeted from over $121 last Thursday to a low of $71 on Monday.
* Tuesday’s trading session saw gains ranging from 9% to 11%.
* Margin requirements for silver futures on the CME Group exchange were raised from 11% to 15%.
* A parallel move was observed in gold, which rose 6% after a 20% decline.
Understanding the Precipitous Fall
Market experts point to a confluence of three primary drivers behind the flash crash. Initial uncertainty was triggered by former President Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve, casting doubt on the future path of U.S. interest rate policy. Analysts at Berenberg described this as setting off a “chain reaction” that initiated a wave of selling.
This situation was exacerbated by a decisive move from the CME Group. The exchange’s decision to hike margin requirements by four percentage points forced numerous speculative traders to liquidate their positions to meet the new collateral demands. Coming after a 46% rally since the start of the year, the market was widely considered technically overbought, leading to substantial profit-taking.
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A Technical Rally Takes Hold
The current upward move is largely viewed by analysts as a technical correction. Strategists at Swissquote note that Monday’s breach below the 50-day moving average subsequently attracted fresh buying interest. UBS characterizes the sell-off as a cyclical correction within an overextended uptrend, affirming that the longer-term bullish trend for the metal remains undisturbed.
Market chatter has also included speculation that major financial institutions may have used the depressed price levels to cover short positions. However, no evidence of market manipulation has been presented.
Volatility is Expected to Persist
While Tuesday provided a period of stabilization, it does not signal an end to underlying market tensions. Strategists at Pepperstone warn that unpredictability is likely to continue. Notably, industrial metals like copper were largely insulated from the precious metal’s crash. The silver market is now searching for a new equilibrium following a massive “leverage shakeout,” and investors should brace for the potential of further severe price swings.
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